Earnings Growth Forecast for ETFs

Abstract

We forecast earnings growth in the next 5 years for stock-market-indexed exchange-traded funds (ETFs). Our methods include the P/E and P/B cross-sectional regression-implied (RI) estimates and the earnings growth random-walk (RW) estimates. Our results show that compared with the actual earnings growth, both the RI and RW forecasts of earnings growth are unbiased for the U.S. ETFs but biased for the foreign ETFs. In addition, the RI method generates smaller forecast errors than the RW method for the U.S. ETFs but holds no advantage over the RW method for the foreign ETFs. Therefore, the RI forecast may be a useful method for the U.S. ETFs during our sample period of 2000-2023 but may not be so for the foreign ETFs.